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Deezer raises €100m, but won't be signing exclusive albums

Deezer has raised €100 million (£77m) in funding following its recent failed IPO, as it looks to keep pace with Apple and Spotify in the music streaming market. But the firm said it would not focus on creating exclusive deals with record labels as a means of expanding its business.

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Instead, the French company, which has around three million active, paying subscribers, said it would use the money to consolidate its position against its higher-profile competition, and improve marketing. The latest funding round was led by Access Industries, with previous investor Orange a major participant. "I don't think there will be a situation where it would be beneficial to have exclusive music on Deezer, exclusive music on Spotify and exclusive music on Apple," Deezer CEO Hans-Holger Albrecht told WIRED.

Albrecht said it was important that music streaming services resisted the urge to sign exclusive deals, which risked making things "complicated" for users.

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That position is in stark contrast to the business models of leading video streaming firms such as Netflix and Amazon, which continue to sign up exclusive shows. But with music licensing less geographically complex than film or TV, Albrecht said there was less need for exclusive albums or songs.

Deezer CEO Hans-Holger Albrecht

Deezer

"I have my doubts that people, in order to listen to music, will go to two or three different music services. That's very different to the video side. Video has been more like this and there you can do something with original content." "Consumers tend to go to piracy when things get complicated. As long as we keep things simple then the consumers are happy to pay for legal services."

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Deezer's latest investment comes off the back of a failed attempt to float on the stock market. In October 2015 it announced its intention to raise €300m (£231.3m) through an initial public offering (IPO) in Paris, valuing it at up to €1.1bn (£848.1m). Investors didn't agree and within a month the IPO was pulled "due to market conditions".

But Albrecht said there remained cause for optimism. "The market is going fast now, so for us it is all about capturing the opportunity," he told WIRED. "We have always been fighting against companies like Spotify which are bigger in terms of capital resources and brand awareness. That's nothing new."

Albrecht said Deezer would continue to focus on creating partnerships with mobile phone network operators in a bid to attract new users to music streaming. In the UK it recently struck a deal with Three to offer customers six months free streaming, with similar deals being done in other countries.

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As long as we keep things simple then the consumers are happy to pay for legal servicesHans-Holger Albrecht, CEO, Deezer "Penetration levels now are between three and four percent, so very small. The race is just starting and it is absolutely doable for us, as we have demonstrated in the past, to play a role."

And "bundling", where people pay indirectly for music streaming, remains a good way to attract new business, he said. "It's not trickery really, it's to show them the strengths of the product and to show people it's not just a replacement for downloads."

In June 2015, 1.5 million of the music service's active paying subscribers had signed up through a bundle, but 3.3 million people who could be using Deezer through other subscriptions had failed to do so.

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The company recently added more than 40,000 radio shows, audiobooks and podcasts, including a deal in the UK to stream TalkSport's commentaries of Premier League and FA Cup matches. And Deezer isn't the only streaming service adding more than just music. In May 2015 Spotify introduced podcasts and video clips, while Apple Music launched with its much-hyped Beats 1 radio station.

I have my doubts that people, in order to listen to music, will go to two or three different music servicesHans-Holger Albrecht, CEO, Deezer

Despite expansion and investment, music streaming remains mostly unprofitable. Deezer has never made a profit, reporting an operating loss of €27m (£20.8m) in 2014 on revenues of €142m (€109.5m). Albrecht expects revenue to top €750m (£578.5m) by 2018, at which point the company should break even. "People should not judge from today the financial maturity," Albrecht said. "They should give it some time. I've not seen a better model than streaming." But even for services with more paying customers and brand awareness, profit is still proving elusive. With 20m paying subscribers market-leader Spotify still makes a loss. Financial results published in May 2015 revealed an operating loss of €165.1m (£119m) on revenues of €1.08bn (£777m) in 2014. Spotify's UK business, which made £2.57m profit in 2013, suffered losses of £1.2m in 2014. As with Deezer, this hasn't deterred investors: in June Spotify raised $526m (£371m), valuing it at a reported $8.53bn (£6.01bn).

But Albrecht said the success, and profitability, of music streaming was dependent on a number of big players succeeding. "It's not a one winner takes it all market, it's not going many players either, but it's going to be probably four or five big players in the world," he said.